News

Pork Commentary: US Lean Hog Prices Continue to Increase

17 May 2016

Jim Long on ThePigSite

Jim Long is President &CEO of Genesus Genetics.

US - Last week the US lean hog price continued its quest to 80¢ lb. reaching 75.6¢ (53-54%) up from 65.86¢ a month ago (plus $22 per head). Never fast enough when you own hogs but the pendulum is swinging in producers favour, writes Jim Long, President-CEO Genesus Inc.

Other Observations

- The rejection of Mason City, Iowa City Council of Prestage Farms application to build a slaughter plant is definitely not good news for producers. Not only will it stop or delay more U.S harvesting capacity it is a stark reminder of the “Not in My Backyard” (NIMB) in parts of our society that is limiting any dynamic growth of both production and packing facilities throughout North America.

Mason City is in the heart of U.S swine production and you would think the city leaders would comprehend the connection of swine production in Iowa to the wealth and jobs it has created.

Part of the challenge is the huge wealth and equity that farmland values have created in the U.S heartland (estimated $225 billion farm equity in Iowa) could be leading to a complacency that the added value of livestock is not necessary to sustain and grow to rural town and city economies.

The wealth with complacency means some local people don’t look to Packer jobs as needed for employment. They see the Packing Plants as a magnet for workers out of state (or country), the social and cultural impact creates a dynamic that works against the desire for Packing Plants. We hope Prestage keeps going and finds a place that welcomes there investment and commitment.

We expect some existing packing companies did a “Happy Dance” when they learned of Mason City stopping Prestage. Tight Packer capacity is certainly good for existing Packer margins.

- We had visitors from China this week. A very large producer. Profits in China are running $100-150 per head. Industry profit is running U.S dollar 1-1.5 billion per week. 45 lb. feeder pigs are selling for $175 U.S per head in China. Obviously China’s 11 million sow liquidation has cut supply and demand is making it “Christmas morning” every day in China for hog producers right now.

The “Not in My Backyard” syndrome in North America which also includes sow housing design, antibiotics, environmental regulation etc. is driving up our cost of production and will make us less competitive overtime. It appears it is a cost of us doing business in our culture.

In China gestation stalls are still being put in. Antibiotics are not a consumer issue. The government encourages swine production. When was the last time a government in the US-Canada made a policy or effort to encourage swine production? The Chinese visitors we had last week produce several million hogs now and have a goal to add several 100 thousand sows over the next while.

In North America producers fight to get a 2500 sow barn permitted. Maybe we don’t really need more sows with all the new regulations coming in championed by special interest groups we will slowly lose our pork export competitiveness. The Whole Foods types have a disappropriate effect on our food culture far beyond their market share. We are afraid the agenda they advocate is disconnected from the global need for food (pork) as the world population doubles over the next thirty years. An elitist attitude that Whole Foods and the like advocate is a small piece of the market.

The 10 billion people looking for food over the next few years we doubt much care, when their choice would be food or go hungry.

- We believe the real drivers for Pork demand is enhanced taste and flavour, increased consumption will lead to higher prices. We don’t see how we house, feed etc. pigs making consumers wanting to eat more pork. Ribs and Bellies have more fat than other cuts. Their higher value reflects consumer demand for taste. The “Other White Meat” program sent our industry for a quest to lean not taste.

Market share in USA of Pork has decreased every year for twenty years, those are the facts. Unfortunately we are called producers not marketers. It reflects in our lack of marketing and demand focus. Cost of production is not the only component of profitability, real consumer demand is hugely connected to profit. Taste, Flavour is a real driver. Ribs, Bellies have higher value. Bacon rules supreme and sure the heck it’s not lean.